Stamp duty will be overhauled in Victoria for those buying industrial and commercial property, while change could also be coming for the buyers of residential property.

In its May budget, the state government announced stamp duty on commercial and industrial properties will be abolished and replaced with an annual property tax. 

From 1 July 2024, commercial and industrial properties will transition to the new system when they are sold, with the annual property tax to be payable from 10 years after the transaction. 

The annual property tax for commercial and industrial property will be 1 per cent of the property’s unimproved land value.  

KR Peters Director Peter Nicolls explained that the first purchaser of a commercial or industrial property after 1 July 2024, will be able to choose to pay the traditional lump sum stamp duty upfront or opt for transition to the new system immediately by paying fixed instalments over 10 years.

The fixed instalments will be equal to stamp duty and interest with a government-facilitated transition loan.

Once a property has transitioned to the new system, it won't be eligible for stamp duty option.

Mr Nicolls said the change was "good for developers who want to get in and do the project and sell the end product and make a profit".

"If it's a developer developing the project he will have a win, providing he can get in and out in short term."

However, Mr Nicolls is concerned the new arrangement could end up costing the owners of industrial and commercial properties more over the long term than stamp duty would have done.

"Anyone buying and holding the property as a long term investment will end up paying more. If they keep the property for 14 years, they will pay basically double what they would have paid in stamp duty up front," he explained.

However, on the plus side Mr Nicolls said the change would benefit cash flow for businesses and be a disincentive to land banking.

Meanwhile, a Victorian Upper House committee is holding an inquiry into stamp duty, including the effect it has on the residential market.

Liberal Democrat MP David Limbrick, who proposed the inquiry, called stamp duty the "worst tax in Victoria".

Mr Nicolls agrees, explaining anyone buying a home worth $745,000 faces an additional stamp duty bill of $40,000, which goes straight into government coffers.

However, any change to stamp duty could have profound consequences for state revenue with the government reaping $5 billion in revenue each financial year from the unpopular tax.

The committee is looking at issues such as does stamp duty discourage older people from downsizing and does it deter workers from moving to new jobs if they have to sell an existing home and buy in a new area?

NSW last year moved to a new system which gives buyers of residential property the choice of either stamp duty or an annual land tax.

Mr Nicolls said if there were to be a change in Victoria, buyers or residential property should be given an choice, similar to the NSW model.

"I honestly think the buyer should have the option of going one way or the other," he said, describing the current burden placed on homebuyers of upfront stamp duty as "draconian".

"With escalating interest rates and property prices, people are struggling and stamp duty is a big burden on top of what people are already paying to secure a home or investment property," Mr Nicolls said

"It will be very interesting to see what the committee recommends especially as the government is doing anything it possibly can to rake in more money to pay down debt."

The committee is expected to hand down its report before the end of the year.